May 30 (Bloomberg) -- Warren Buffett’s energy unit will
consolidate a western expansion begun in 2005 with its planned
$5.6 billion acquisition of Nevada’s largest utility,
potentially reigniting takeovers in the sector.

MidAmerican Energy Holdings Co.’s purchase of Las Vegas-based NV Energy Inc., announced yesterday, would make it the
largest U.S. utility owner with 8.4 million customers, according
to data compiled by Bloomberg. The Berkshire Hathaway Inc. unit
agreed to pay $23.75 a share, 23 percent more than NV Energy’s
$19.28 closing price yesterday, the companies said in a
statement.

Buffett, Berkshire’s chief executive officer and chairman,
has been boosting investments in capital-intensive businesses as
he seeks to allocate funds at his Omaha, Nebraska-based company,
which had $49.1 billion in cash as of March 31. MidAmerican will
have assets of about $66 billion after the completion of the
deal, which is expected in the first quarter of next year,
according to the statement.

“We’re investing in a management team we believe in, we’re
investing in quality assets,” MidAmerican CEO Greg Abel said
yesterday in an interview. “We see, fundamentally, there will
be underlying economic growth in Nevada.”

More Deals

MidAmerican’s move came after a month long decline in
utility stocks. After climbing to a five-year high in April, the
Standard and Poor’s 500 Utilities Index has dropped 9 percent
this month on investor concerns that rising interest rates will
make their dividends less attractive.

NV Energy rose 23 percent to $23.62 at the close in New
York, the most in 10 years. The company had gained 12 percent in
the past year through yesterday, trailing the 20 percent
increase for the Standard & Poor’s Midcap Utilities Index.
Berkshire rose 1.7 percent to close at a record $172,200.

The purchase is the largest announced acquisition of a U.S.
power company since Duke Energy Corp. bought Progress Energy
Inc. for $17.8 billion last July. Takeovers paused in the past
year as valuations rose and regulators stepped up scrutiny of
deals.

“As valuations come off, you might see a little bit more
merger and acquisition activity,” Andrew Bischof, a Chicago-based analyst for Morningstar Inc., said in an interview
yesterday.

Desirable Target

The Berkshire unit had targeted renewable energy deals
after deeming utility valuations too high, Chief Financial
Officer Patrick Goodman said in a Nov. 13 interview. “As a cash
buyer, we will be looking at utilities if pricing comes in a
bit,” he said.

NV Energy may have become a more desirable target as its
shares declined after reaching a 52-week high of $21.63 on April
30, Paul Patterson, a New York City-based utilities analyst with
Glenrock Associates, said in a phone interview yesterday.

Staying Rich

Buffett, 82, has said that businesses like utilities have
earnings power even under adverse economic conditions and can
provide fair returns on capital as long as they make investments
in infrastructure to meet customer needs. Owning utilities is
“not a way to get rich,” he said at a meeting of U.S. state
regulators in 2006. “It’s a way to stay rich.”

NV Energy has been boosting its purchases of electricity
from solar plants and wind farms to meet a state requirement to
get one-fourth of its power from renewable sources by 2025. The
company also has been investing in building natural gas-fired
plants and transmission lines that will boost cash flow, Bischof
said.

MidAmerican’s “renewable energy expertise coupled with
their desire to invest capital could be a boon to renewable
energy in our state,” Yackira said in a telephone interview.

MidAmerican reported net income of $444 million in the
first quarter, 17 percent more than a year earlier.

Good Deal

With the deal, the Des Moines, Iowa-based power company
gains $875 million in cash flow from NV Energy’s operations and
$322 million in annual net income, of which only $151 million
was paid in dividends in 2012, Michael Granowski, principal with
Bridge Strategy Group, a Chicago-based management consulting
firm, said in an e-mail.

“Combine this with the prospect for potentially
significant tax benefits from repowering some of their coal
facilities with renewables, and it looks like a pretty good
deal,” Granowski said.

Nevada’s economy has shown signs of a rebound after a six-year slump. Residential construction permits rose 47 percent
last year after declining since 2005. NV Energy said earlier
this month first-quarter net income rose 76 percent to $21.5
million compared with a year ago.

The purchase will need the approval of the Public Utilities
Commission of Nevada and the Federal Energy Regulatory
Commission, as well as NV Energy shareholders, according to a
regulatory filing.

State Approval

State regulators may seek concessions on job safety and
rates and insist merger savings be shared with customers,
Shahriar Pourreza, a New York-based Citigroup Inc. analyst,
wrote in a note to clients yesterday.

MidAmerican’s cheaper credit and Berkshire’s willingness to
pay cash with no financing complications will make the deal “an
easier sell” than usual for regulated transactions, Pourreza
wrote.

Yackira said he expects that MidAmerican will keep NV
Energy’s management team intact and the Nevada utility will be
given the autonomy to shape strategic and investment decisions.
The company’s headquarters will remain in Las Vegas.

“It has not been the M.O. of MidAmerican to come in and
clean house and have layoffs,” he said. “In fact the opposite
is true.”

PacifiCorp Purchase

Berkshire agreed in 2005 to acquire PacifiCorp, which
provides electricity and gas to 1.8 million homes and businesses
in four states bordering Nevada -- California, Oregon, Idaho and
Utah -- as well as Wyoming and Washington. Its MidAmerican
Energy utility has electricity and gas customers in Iowa,
Illinois, Nebraska and South Dakota.

MidAmerican also delivers electricity to 3.8 million homes
and businesses in the U.K., according to its website.

NV Energy, with 1.3 million electric and gas customers, was
formed in 1999 by the merger of Nevada Power and Sierra Pacific
Resources. The company traces its roots back to 1906, when a
predecessor was the first to provide electricity to Las Vegas
and the first to distribute power from the Hoover Dam.